Lack of unity on the BRI allows China to pick-off individual countries, causing splits within the EU and increasing nationalism

China, for its part, has invested heavily in Europe’s ports and technology infrastructure, in part because it hopes to drive a wedge between the United States and Europe. The more internally divided Europe is, the more it will find itself at the mercy of these opportunistic great powers. This is a recipe for a Europe once again roiled by nationalism, an EU that is irrelevant, and a transatlantic alliance in which Europe has little influence and the United States lacks a strong partner.

Germany and France are reaching separate deals with China now

Russo, August 2, 2019, Federica Russo is an Italian freelance writer focused on Chinese economic engagement in the global scene, as well as a consultant for Eagles Nest International, a Chinese company that supports individuals and organizations dealing with the difficulties of intercultural encounters. She is also an external contributor for Cultural Bridge, where she writes articles on organizational behavior, cross-cultural management, and leadership, Asia Times, A new chapter in the Sino-Italian relationship, https://www.asiatimes.com/2019/08/opinion/a-new-chapter-in-the-sino-italian-relationship/

First, Germany and France discouraged the Belt and Road MoU, deeming this document not in line with European foreign policy. This suggests that German Chancellor Angela Merkel would have opted for a common approach to handle China, but according to her country’s Federal Statistical Office, Beijing and Berlin signed more than 225 agreements in the past decade, positioning Germany as China’s No 1 trading partner within the European Union. French President Emmanuel Macron also supported an action plan studied by EU members, but this vision did not match the contracts concluded with Xi Jinping one week after the Chinese state visit to Rome. The French concerns confirmed the competition within the eurozone, which could see France losing ground if Chinese goods terminate at Italian ports.

Jun 25, 2019( European Law Blog: http://europeanlawblog.eu Delivered by Newstex) By Femke van der Eijk and Angela Pandita Gunavardana China’s global influence has grown dramatically in recent years. Its Belt and Road Initiative (BRI) is an important manifestation of this rise. On 23 March 2019 Italy, the first G7 country[1], formally joined the BRI, which has caused significant tensions within the EU. This was the wake-up call for the EU, which prompted it to reconsider[2] its policies towards the Asian superpower. To BRI, or not to BRI? The BRI[3] is a transcontinental endeavour, launched in 2013, which is centred around infrastructure investment and aims at promoting projects that foster regional cooperation, development, and connectivity. Italian Deputy Prime Minister Luigi Di Maio and Chinese President Xi Jinping signed the Memorandum of Understanding on Italy joining the BRI on 23 March 2019[4]. The Memorandum is a non-binding statement of intent[5], through which Italy expresses its commitment to the initiative. It does not create rights and obligations under international law[6] as a treaty would do. The Memorandum, however, represents an umbrella deal[7] under which 29 other commercial [8]and institutional[9] agreements amounting to €2.5[10] b[11]illio[12]n [13]were made. The deals concern energy, finance, and agricultural produce. It was also agreed that large Italian gas, energy, and engineering firms will obtain access to the Chinese market. At the same time, Chinese communications and construction companies will receive access to the port of Trieste[14] and Genoa[15]. This will open China’s passage into central and eastern Europe. China portrays the BRI as a win-win relationship [16]aimed at mutual growth and prosperity. Yet skeptics view the BRI as a means by which China strives to further embed its global influence.[17] Moreover, there are concerns that China will use the BRI to export more of its goods to lucrative markets[18], while the other participants will not benefit to an equivalent degree from the arrangement and even incur debts[19]. For instance, Pakistan and Malaysia[20] have already started cancelling many of their BRI projects, because they are unable to make debt repayments for the Chinese loans for those projects. In this regard, some critics also expressed their concerns claiming that China could use, ‘debt-trap diplomacy[21]’ to obtain strategic concessions, for instance, over territorial disputes in the South China Sea or silence on human rights abuses. These concerns are particularly alarming considering the scale of the initiative. It is linked to two-thirds of the world’s population[22] and already amounts to an investment of more than US[23] $1 trillion[24].The Road that divided the EU Italy joining the BRI has caused discontent within the EU. There are widespread concerns that an influx of Chinese investment can have an adverse effect on the national security of EU Member States.

Countries joining alone create conflicts with the EU, as it violates their own trade obligations to the EU. Italy proves.

These states view the BRI and Chinese investment as a largely positive development. This rift in perspectives causes further disunity within the EU. The Dutch government in its new strategy on China[39] realizes the potential of tensions within the EU due to the differences in perspectives regarding the future of EU-China relations. Hence, the Dutch government emphasized that coherence, unity, and compromise should be the key concepts driving the formulation of the new policy regarding EU-China relations. BRI and EU law obligations Moreover, there are certain legal obligations under EU law that Italy must comply with, including the EU’s exclusive competence in trade matters (the ‘Common Commercial Policy[40]’) and the duty of sincere cooperation (as stipulated in Article 4(3) of the TEU[41]). Italy’s commitment to the BRI through the Memorandum can create tensions with these obligations down the road. While Italy is not the only EU Member State to get involved with the BRI, it is the largest EU economy[42] so far to do so. Therefore, this question of whether the MoU abides by EU law becomes even more pressing. As established earlier, the Memorandum is a non-binding statement of intent. However, moving forward in implementing these intentions could not only exacerbate political tensions within the EU but also lead to a violation of Italy’s legal obligations as an EU Member State. A particular aspect of the Memorandum stands out in this context. The second paragraph of the Memorandum concerns areas of cooperation and more specifically the third section herein discusses unimpeded trade and investment[43]. Within this section, the Memorandum discusses the aim of working towards expanding investment and trade, and promoting market cooperation between the two countries. Although this section does not explicitly mention the creation of trade or investment agreements, if steps were made in the direction of creating binding intergovernmental agreements that solidify the commitments set out in the Memorandum without the approval of the EU, that would be at odds with EU law for the following two reasons. Firstly, trade policy is an exclusive competence of the EU[44]. This means that only the EU can act internationally and not the Member States themselves. The scope of this EU trade policy has been expanded by the Lisbon Treaty and subsequent judgments and opinions of the Court of Justice of the EU, with for example Daiichi Sankyo[45] and Opinion 2/15[46]. It includes today explicitly foreign direct investment[47]. Secondly, under the duty of sincere cooperation, Member States are to ‘refrain from any measure which could jeopardize the attainment of the Union’s objectives’ (Article 4, paragraph 3 TEU[48]). The case law of the CJEU has interpreted this duty widely and according to the Inland Waterways case, this duty includes situations where Member States negotiate agreements with third countries in parallel to the EU[49] and on the same subject matter. Seeing that the EU launched negotiations for an investment agreement[50] with China in 2013, a new bilateral Italy-China investment agreement under this BRI framework would thus amount to Italy violating the duty of sincere cooperation.Furthermore, modernizing the pre-existing bilateral investment treaty between China and Italy from 1985 would also amount to a violation of EU law without proper coordination with the EU institutions[51]. In addition, the fact that CJEU declared the arbitration clauses in bilateral investment treaties between the EU Member States illegal in the Achmea[52] judgment, strengthens the case that any binding investment agreement with investor-state dispute settlement made between Italy and China in the future under the BRI umbrella could constitute a violation of EU law, if not specifically authorized by the EU.Looking down the Road Italy joining the BRI has heightened the tensions regarding a unified EU approach vis–vis China. Yet, the Memorandum of Understanding between China and Italy is merely a political commitment, not a legal one. Hence, it does not immediately create a conflict with Italy’s legal obligations under the EU law. Nevertheless, if Italy decides to take further steps in formalizing this Memorandum by launching negotiations of binding international agreements, it may soon find itself at odds with its obligations under EU law, which in turn would further amplify the disunity within the EU. Overall, the need for a coherent European foreign and trade policy towards China continues to become more pressing.

This creates fissures in the EU

Italy is expected to join China’s Belt and Road Initiative, or BRI, when Chinese President Xi Jinping arrives Thursday in Rome. The United States has been critical of the trillion-dollar global infrastructure project and warned about the risks of “debt-trap diplomacy.” Members of the European Union are worried the plan could add to fissures in an already strained coalition. When Xi visits this week, analysts say Italy is expected to sign a non-binding memorandum of understanding (MoU) with China. That agreement will pave the way for construction projects and financing from the Beijing-based Asian Infrastructure Investment Bank. The MoU is mostly perceived as a way to secure more exports to China and more chances to access financing from the AIIB, said Alessia Amighini, co-head of Asia Center at ISPI, a Rome-based research group. Rome expects to reduce its trade deficit with China and avoid some heavy expenses by attracting Chinese and AIIB investments in big infrastructure projects. The agreement also will give Chinese companies more access to the busy port of Trieste, and in turn, the Mediterranean. Reports emanating from Italy suggest Rome also is looking at the possibility of inviting Chinese companies to expand or manage three other Italian seaports, which are Genoa, Palermo and Ravenna. Italy is eager to attract investments to improve its competitive position compared to northern European routes and ports, Amighini said. Clearly, China is exploiting business competition within the Eurozone and trying to wean away an important member by offering a set of attractive terms, analysts note. The MoU signing will represent a major political achievement for China at a time of growing concerns and criticism of the plan. Italy is a founding member of the European Union and could help open up doors for Beijing to the Eurozone. So far, the Belt and Road Initiative’s biggest projects and controversies have been tied to countries with serious financial difficulties, such as Sri Lanka, Pakistan, Maldives and Greece. With Italy’s decision to join, China is dealing with a country where there is less fear of slipping into a debt trap under the program. But it is likely to challenge Europe’s connectivity strategy, a plan that was unveiled in September 2018 and aims to improve links within Europe and with Asia while promoting sustainability standards and rules-based practices. Analysts are waiting to find out if Xi will offer a modified version of the program to Italy to meet European standards; but adopting those standards would take away China’s ability to cut costs and reduce its competitive edge. I don’t expect China to show more flexibility. In any case; I don’t see financing terms as a real issue in Europe, Amighini said. European disunity Teresa Coratella, program manager at the Rome office of the European Council on Foreign Affairs, said the Italian move has the potential of creating disunity in the European Union at a time when the coalition is working out a common approach toward Chinese investments. Both the U.S. and France have expressed discomfort about Rome’s move, while German officials reportedly have been lobbying against the MOU signing. Italy, a member of the Group of Seven most industrialized countries, is the only G7 nation to join the BRI. Italy is a major global economy and great investment destination. No need for Italian government to lend legitimacy to China’s infrastructure vanity project, tweeted Garrett Marquis, spokesman for White House’s group of national security advisors. French President Emmanuel Macron has expressed unease about Rome’s decision, and he has called for a coordinated approach covering all European Union members toward Chinese plans. It’s a good thing that China is taking part in the development of many countries, but I believe in the spirit of equality, reciprocity. The spirit of equality means respecting the sovereignty of nations, Macron said. Lucrezia Poggetti, a research associate with Merics, the Berlin-based research institution, said Italy is the third-largest economy in the eurozone, and an Italian signature on the BRI has wide implications. Italy’s decision in itself is bad news for the EU and its largest members, who are currently trying to pursue a more unified European China strategy to address challenges with the economic and political weight of the EU bloc, she said. Rome’s attraction toward the BRI is not new. Former Italian Prime Minister Paolo Gentiloni was the only head of government among G-7 countries to attend the first meeting of the Belt and Road Forum in May 2017. The current government would go much further by officially endorsing an initiative that has been criticized internationally for, among other things, creating debt traps, political dependencies and promoting exclusively the interests of Chinese companies through unfair practices that don’t meet international standards and rules, said Poggetti. China and EU announced to cooperate on synergies between the Belt and Road Initiative and the European Investment Plan last year. The two sides also mull to speed up their financial cooperation under the two projects through enhancing coordination between European Investment Bank and the AIIB. Beijing and Brussels agreed to set up the EU-China Round Table in 2007 following a decision taken by the 9th EU-China Summit attended by top leaders of both sides. The Round Table meets twice a year to discuss topics relating to economic and social issues relevant to both parties. The representatives of the EESC and the CESC, by elaborating reports and exchanging ideas, contribute to the development of the EU-China relationship, from a civil society perspective, the EESC said.

Loss of European unity risks war

Europe today looks disturbingly similar to the Europe of just over 100 years ago, on the eve of World War I. It is a tangle of military commitments and defense pledges, some of them unclear and thus easier to trigger. Its leaders have given vague signals for what would and would not lead to war. Its political tensions have become military buildups. Its nations are teetering on an unstable balance of power, barely held together by a Cold War–era alliance that no longer quite applies. If you take a walk around Washington or a Western European capital today, there is no feeling of looming catastrophe. The threats are too complex, with many moving pieces and overlapping layers of risk adding up to a larger danger that is less obvious. People can be forgiven for not seeing the cloud hanging over them, for feeling that all is well — even as in Eastern Europe they are digging in for war. But this complacency is itself part of the problem, making the threat more difficult to foresee, to manage, or, potentially, to avert. There is a growing chorus of political analysts, arms control experts, and government officials who are sounding the alarm, trying to call the world’s attention to its drift toward disaster. The prospect of a major war, even a nuclear war, in Europe has become thinkable, they warn, even plausible. What they describe is a threat that combines many of the hair-trigger dangersand world-ending stakesof the Cold War with the volatility and false calm that preceded World War I — a comparison I heard with disturbing frequency. They describe a number of ways that an unwanted but nonetheless major war, like that of 1914, could break out in the Eastern European borderlands. The stakes, they say, could not be higher: the post–World War II peace in Europe, the lives of thousands or millions of Eastern Europeans, or even, in a worst-case scenario that is remote but real, the nuclear devastation of the planet.

The question about Europe now is not whether it can retain its current form, but how radically that form will change. And the most daunting question is whether Europe, unable to maintain its union, will see a return of nationalism and its possible consequences. As I put it in Flashpoints: The most important question in the world is whether conflict and war have actually been banished or whether this is merely an interlude, a seductive illusion. Europe is the single most prosperous region in the world. Its collective GDP is greater than that of the United States. It touches Asia, the Middle East and Africa. Another series of wars would change not only Europe, but the entire world.To even speak of war in Europe would have been preposterous a few years ago, and to many, it is preposterous today. But Ukraine is very much a part of Europe, as wasYugoslavia. Europeans’ confidence that all this is behind them, the sense of European exceptionalism, may well be correct. But as Europe’s institutions disintegrate, it is not too early to ask what comes next. History rarely provides the answer you expect — and certainly not the answer you hope for.

China already has substantial investments in 16 European land and air ports

In Europe, scattered information confirms that Chinese state-owned enterprises have major stakes in twelve European ports, including a controlling stake in Greece’s Piraeus harbor – seen by Chinese media as the most important pillar of China’s new Maritime Silk Road in Europe. China has also made inroads into Europe’s airport network, having acquired stakes in London’s Heathrow (9.5 percent), Toulouse (49.99 percent), Frankfurt’s Hahn Airport (82.5 percent) and full control over the main airports in Albania and Slovenia.

If the EU joins as a bloc, they will have more influence to push back against China

“France has been mostly positive about the idea of developing trade routes, but it has voiced a number of caveats, including a clear demand for reciprocity” when it comes to accessing Chinese markets, said Marie-Françoise Renard, a professor at the University of Auvergne in central France and head of the IDREC Institute for Research on China’s Economy “And fortunately, several other European countries have woken up to this too,” Renard told FRANCE 24. “They are starting to realize that with Europe’s clout behind them, they can actually stand up to China.”… “In a world with giants like China, Russia or our partners in the United States, we can only survive if we are united as the EU,” Germany’s Foreign Minister Heiko Maas told Welt am Sonntag newspaper. “And if some countries believe that they can do clever business with the Chinese, then they will be surprised when they wake up and find themselves dependent.”

A unified approach to the BRI is needed for Europe to challenge and influence China

Prodi & Fradella, 2018, Giorgio Prodi is an Associate Professor at the Department of Economics and Management, Ferrara University, Italy. [email protected], Enrico Fardella is a Tenured Associate Professor and Executive Director at the Centre for Mediterranean Area Studies, History Department, Peking University, China, The Belt and Road Initiative and Its Impact on Europe, https://eng.globalaffairs.ru/valday/The-Belt-and-Road-Initiative-and-Its-Impact-on-Europe-19500

Anyway, until today the structural incapacity of Brussels to coordinate and centralise continental industrial and infrastructure policies coupled with the EU members’ after-crisis thirst for investments, have been making the BRI impact on Europe yet another occasion for internal division and competition (as shown by the case of Belgrade–Budapest railway). The ambitious upgrade of the BRI in Xi Jinping’s second mandate might impose an existential alternative on Europe: either deadly balkanization of economic strategies, or a futuristic restructuring of the European mechanism that will empower the EU to actively influence the course of China’s new emerging order.

Lack of a unified European response undermines Europe

One year ago, ThinkIN China invited Romano Prodi, former President of the European Commission and former Italian Prime Minister, to speak on the future of Europe after Brexit – the United Kingdom’s decision to leave the European Union. Being widely viewed as a huge step back in Europe’s integration process, this unexpected event gave rise to numerous questions on the challenges for the EU, that went along with it. Brexit constitutes a symptom of a general EU malaise. Euroscepticism and populist movements are on the rise because EU citizens don’t perceive the European Union to address their concerns. The absence of unity and political coordination is moreover undermining the EU’s role on the international stage as well as its efficiency in responding to new challenges and opportunities, such as China’s Belt and Road Initiative, to whom the EU has not defined a unified policy yet. Southern and Eastern European countries are more open to Chinese investments compared to the leading European economies, which are concerned about an influential role of China in their internal affairs. Indeed, most of Chinese investments have landed in Germany, France, and Italy which are also the countries that are willing to create an EU-wide investment screening mechanism to control foreign investments in Europe as wells as to protect crucial industrial sectors and infrastructures. However, Portugal, Greece, and Cyprus, as well as some Eastern European countries, are not in favor of this initiative. While preparations for the China-EU summit in July 2018 are already well underway, the internal debate on how to adequately respond to the BRI is still going on within the EU.

China already inside and controlling Europe, but the EU is sidelined

François Godement & Abigaël Vasselier , European Council on Foreign Relations, December, 2017, China at the gates: A new power audit of EU-China relations, https://www.ecfr.eu/publications/summary/china_eu_power_audit7242

China practises “pick and choose” in its relations with the European Union, focusing on its direct interests, and often ignoring EU norms in its proposals. It has vastly increased efforts to strengthen bilateral relations with member states, putting special emphasis on Europe’s periphery. China holds its own summit with central and eastern European nations, the so-called 16+1, and it seized the opportunity of the euro crisis for massive takeovers in southern Europe. Fascinatingly, its offers and their packaging are not very different from those offered to African and other developing nations: a flurry of projects creating competition among recipients, loans at commercial rates, and a strong insistence on identical statements and agreements. China is now inside Europe. Its soft power diplomacy relies on repetitive and positive messages. There is a gold rush by some European figures, while many companies, media groups, and universities seek to protect their access to the Chinese market. The EU has been learning from the experience of difficult – or sometimes inexistent – relations. New agreements are missing, even on trade and economic issues which are at the core of the interest for Europe. The agreed Agenda 2020 for political and security cooperation with China is fulfilled only minimally – with human rights and humanitarian aid as the most disappointing areas. This gap is also explained by the opportunistic behaviour of many – but not all – member states. Climate and environment issues seem more promising, but at the 2017 EU-China summit, China held a joint statement on climate hostage to its dispute on market economy status. Europe does not link together different issues. It seeks engagement with China on peacekeeping and support for fragile states, but at best these actions happen only side by side and not jointly. Europe is turning to realist engagement with China, getting over the mirage of cash from China. China is strengthening its command economy, turning to full state-led industry and technology policies, including their military applications. In Europe, this means acquisition of critical technologies, scientific cooperation agreements mirroring China 2025 goals, and other massive plans to lead the fourth industrial revolution. A requirement for reciprocal opening has entered European policy statements on China. The European Commission has proposed new trade defence instruments and has expanded an initiative by three core member states on investment screening. This is not a turn to protectionism. Europe seeks engagement rather than confrontation, but must also gear up for a China that is presently unresponsive to its requests. China is now firmly inside Europe – not only in the form of goods and visitors, but making itself felt through investment, loans, subregional groupings, public diplomacy and influence, and growing military and defence ties. On any given day, Europe is open; China, meanwhile, is in a process of political and mercantilist closure that undercuts its own surface support for globalisation. This explains why Europeans’ demand for ‘reciprocity’ has become a keyword embedded throughout their statements on China. But it is rapidly becoming clearer that the European Union must also devise policies fit for an era in which China rejects reciprocity. While becoming the world’s second largest economy thanks to global trade and finance rules, China refuses to recognise the consequences of this change: in Xi Jinping’s words, “China’s international status as the world’s largest developing country has not changed.”[1] When the European Council on Foreign Relations last studied the balance of power between China and Europe, in 2009, it made a forceful case for ‘reciprocal engagement’ – that the benefits of developing the relationship should be shared between the two sides of the aisle.[2] Even at that point in time, a more optimistic period was drawing to a close. The ‘myth of convergence’ of the 2000s – that China, as an economy developing ever more dense relations across the world, would eventually transition to market and rule of law – had already been coming under sustained challenge: in 2007, James Mann’s China Fantasy did much to dispel this illusion. The experience of the near-decade since then has been one of a quiet but dramatic shift. There is now a deeper, and still-growing, imbalance between Europe and China. China has become ever more entrenched on many economic fronts inside Europe – while at home it has in many respects pulled up the drawbridge to Europe. The ‘myth of convergence’ has been replaced by a new lore, one that tells Europeans of a cornucopia of potential Chinese investment and contributions, of “an offer you cannot refuse”. Europeans still display much credence, not to say credulity, in these myths: from central and eastern European countries attracted to the promises made through China’s ‘16+1’ format, to the ambitions that the European Union itself signed up to in 2013 with the EU-China 2020 Strategic Agenda for Cooperation. Many have begun to see through the tall tales, however; moves are afoot to assert both Europe’s values and interests in this evolving relationship. But China, in turn, is at risk of underestimating Europe. Even during these years of great difficulty for the EU, China has found it difficult to circumvent the complex of rules and convention that bind European states – and prospective EU members – together. Yet it still operates on a vision where Europe is a set of sovereign states with a regional organisation that happens to be the EU. The “wind in our sails” hailed by Jean-Claude Juncker in his 2017 state of the union speech has not reached Beijing. The myth of changing the world along European lines may now be a thing of the past. But Beijing risks living in its own world of make-believe, trusting in its own hype, and overestimating its own reach into Europe. Recognising and responding more fully to this will not be easy in Europe, not least while politicians and publics alike remain transfixed by the spectacle of Donald Trump and ‘America First’ to their west and an unpredictable and restless Russia to their east. The Russians may have placed themselves firmly in some Europeans’ minds. But the Chinese have placed themselves in Europeans’ wallets. It is beyond time now that the EU and its member states draw themselves up to look this fact in the face and decide what it means for them and the people they represent. Mind games are one thing, but money talks; Europeans should start listening to what it is telling them.

Failure to have a unified approach divides Europe and pits countries against each other

François Godement & Abigaël Vasselier , European Council on Foreign Relations, December, 2017, China at the gates: A new power audit of EU-China relations, https://www.ecfr.eu/publications/summary/china_eu_power_audit7242 François Godement is director of the Asia and China programme and a senior policy fellow at the European Council on Foreign Relations. He is a non-resident senior associate of the Carnegie Endowment for International Peace in Washington, DC, and an outside consultant for the Policy Planning Staff of the French ministry of foreign affairs. A long-time professor at France’s National Institute of Oriental Languages and Civilisations and at Sciences Po, he created Asia Centre IFRI at the Paris-based Institut Français des Relations Internationales (1985-2005). In 2005 he founded Asia Centre as an independent centre for research on Asian issues as they intersect global debates. He is a graduate of the Ecole Normale Supérieure de la rue d’Ulm (Paris), where he majored in history, and he was a postgraduate student at Harvard University. In 1995 he co-founded the European committee of the Council for Security Cooperation in the Asia-Pacific (CSCAP), which he co-chaired until 2008. He has also been a member of the advisory board for the Europe China Academic Network (ECAN) He is editor of China Analysis, a quarterly analytical survey of Chinese news and debate published by ECFR. His recent publications include “Expanded ambitions, shrinking achievements: How China sees the global order” (2017), “China’s market economy status and the European interest” (2016), and Contemporary China: between Mao and Market (Rowman & Littlefield, 2015). Abigaël Vasselier is programme coordinator and policy fellow at the Asia and China programme at the European Council on Foreign Relations. She joined ECFR in 2013. Prior to that she graduated in international relations from Sciences Po Aix. She holds a master’s degree in Asian politics from the School of Oriental and African Studies and holds a bachelor’s degree in Chinese. She also studied at China Foreign Affairs University in Beijing. She has previously written for China Analysis and for China Brief.

Of course, the age-old questions of European division versus European unity remain unanswered on many issues. This is especially the case when it comes to China, about which many are only just understanding that there is a serious question to respond to. While German foreign minister Sigmar Gabriel explains that, “if we do not succeed in developing a single strategy towards China, then China will succeed in dividing Europe”, China’s foreign affairs spokesperson proclaims Chinese support for European integration.[7] But, she adds “the EU is a regional organisation composed of sovereign states, not a sovereign country itself”.[8] Both are right, of course. A fragmenting or even static Europe will be a conflicted Europe; movement towards European integration will increase its leverage. An array of documents detail the EU’s relations and ambitions with China; the pile sits atop a mountain of bilateral relations that European countries maintain with China.

EU has held together so far

François Godement & Abigaël Vasselier , European Council on Foreign Relations, December, 2017, China at the gates: A new power audit of EU-China relations, https://www.ecfr.eu/publications/summary/china_eu_power_audit7242 François Godement is director of the Asia and China programme and a senior policy fellow at the European Council on Foreign Relations. He is a non-resident senior associate of the Carnegie Endowment for International Peace in Washington, DC, and an outside consultant for the Policy Planning Staff of the French ministry of foreign affairs. A long-time professor at France’s National Institute of Oriental Languages and Civilisations and at Sciences Po, he created Asia Centre IFRI at the Paris-based Institut Français des Relations Internationales (1985-2005). In 2005 he founded Asia Centre as an independent centre for research on Asian issues as they intersect global debates. He is a graduate of the Ecole Normale Supérieure de la rue d’Ulm (Paris), where he majored in history, and he was a postgraduate student at Harvard University. In 1995 he co-founded the European committee of the Council for Security Cooperation in the Asia-Pacific (CSCAP), which he co-chaired until 2008. He has also been a member of the advisory board for the Europe China Academic Network (ECAN) He is editor of China Analysis, a quarterly analytical survey of Chinese news and debate published by ECFR. His recent publications include “Expanded ambitions, shrinking achievements: How China sees the global order” (2017), “China’s market economy status and the European interest” (2016), and Contemporary China: between Mao and Market (Rowman & Littlefield, 2015). Abigaël Vasselier is programme coordinator and policy fellow at the Asia and China programme at the European Council on Foreign Relations. She joined ECFR in 2013. Prior to that she graduated in international relations from Sciences Po Aix. She holds a master’s degree in Asian politics from the School of Oriental and African Studies and holds a bachelor’s degree in Chinese. She also studied at China Foreign Affairs University in Beijing. She has previously written for China Analysis and for China Brief.

For years, China and the EU have failed to find an agreement on either a partnership or an investment agreement. A partnership and cooperation agreement (PCA in EU parlance) would require more common ground on values. Over the past five years, China has not taken a great interest in an investment agreement that would require changes to its economy. It has rather sought a guarantee against anti-dumping by proposing a free trade agreement. It has also used every bilateral opening with member states and beyond – as free trade treaties with Iceland, Switzerland, and ongoing negotiations with Norway and Israel can testify. This flurry of activity coincided with the period of greatest difficulty for the EU, following the 2011 public debt crisis. Yet the EU held together, is facing Brexit in a unitary fashion so far, and even EU governments led by nationalist parties (Hungary, Poland, Greece and to some extent Finland) do not openly challenge the EU’s lead on economic issues. Under Jean-Claude Juncker’s mandate, realist EU leaders are a tougher partner for China.

China’s current approach of ignoring EU will not enable it to develop substantial influence there, as it alienates the public

François Godement & Abigaël Vasselier , European Council on Foreign Relations, December, 2017, China at the gates: A new power audit of EU-China relations, https://www.ecfr.eu/publications/summary/china_eu_power_audit7242 François Godement is director of the Asia and China programme and a senior policy fellow at the European Council on Foreign Relations. He is a non-resident senior associate of the Carnegie Endowment for International Peace in Washington, DC, and an outside consultant for the Policy Planning Staff of the French ministry of foreign affairs. A long-time professor at France’s National Institute of Oriental Languages and Civilisations and at Sciences Po, he created Asia Centre IFRI at the Paris-based Institut Français des Relations Internationales (1985-2005). In 2005 he founded Asia Centre as an independent centre for research on Asian issues as they intersect global debates. He is a graduate of the Ecole Normale Supérieure de la rue d’Ulm (Paris), where he majored in history, and he was a postgraduate student at Harvard University. In 1995 he co-founded the European committee of the Council for Security Cooperation in the Asia-Pacific (CSCAP), which he co-chaired until 2008. He has also been a member of the advisory board for the Europe China Academic Network (ECAN) He is editor of China Analysis, a quarterly analytical survey of Chinese news and debate published by ECFR. His recent publications include “Expanded ambitions, shrinking achievements: How China sees the global order” (2017), “China’s market economy status and the European interest” (2016), and Contemporary China: between Mao and Market (Rowman & Littlefield, 2015). Abigaël Vasselier is programme coordinator and policy fellow at the Asia and China programme at the European Council on Foreign Relations. She joined ECFR in 2013. Prior to that she graduated in international relations from Sciences Po Aix. She holds a master’s degree in Asian politics from the School of Oriental and African Studies and holds a bachelor’s degree in Chinese. She also studied at China Foreign Affairs University in Beijing. She has previously written for China Analysis and for China Brief.

China’s 16+1 Europe initiative is drive by a desire to divide and rule Europe

François Godement & Abigaël Vasselier , European Council on Foreign Relations, December, 2017, China at the gates: A new power audit of EU-China relations, https://www.ecfr.eu/publications/summary/china_eu_power_audit7242 François Godement is director of the Asia and China programme and a senior policy fellow at the European Council on Foreign Relations. He is a non-resident senior associate of the Carnegie Endowment for International Peace in Washington, DC, and an outside consultant for the Policy Planning Staff of the French ministry of foreign affairs. A long-time professor at France’s National Institute of Oriental Languages and Civilisations and at Sciences Po, he created Asia Centre IFRI at the Paris-based Institut Français des Relations Internationales (1985-2005). In 2005 he founded Asia Centre as an independent centre for research on Asian issues as they intersect global debates. He is a graduate of the Ecole Normale Supérieure de la rue d’Ulm (Paris), where he majored in history, and he was a postgraduate student at Harvard University. In 1995 he co-founded the European committee of the Council for Security Cooperation in the Asia-Pacific (CSCAP), which he co-chaired until 2008. He has also been a member of the advisory board for the Europe China Academic Network (ECAN) He is editor of China Analysis, a quarterly analytical survey of Chinese news and debate published by ECFR. His recent publications include “Expanded ambitions, shrinking achievements: How China sees the global order” (2017), “China’s market economy status and the European interest” (2016), and Contemporary China: between Mao and Market (Rowman & Littlefield, 2015). Abigaël Vasselier is programme coordinator and policy fellow at the Asia and China programme at the European Council on Foreign Relations. She joined ECFR in 2013. Prior to that she graduated in international relations from Sciences Po Aix. She holds a master’s degree in Asian politics from the School of Oriental and African Studies and holds a bachelor’s degree in Chinese. She also studied at China Foreign Affairs University in Beijing. She has previously written for China Analysis and for China Brief.

‘Divide and rule’? There is no question that the 16+1 scheme is part of a broad ‘divide and rule’ practice. On the one hand this can be achieved with some ease. Engagement in 16+1, as with FOCAC, is very much a case of countries leveraging their diplomacy to win funding for projects, with the Chinese partner examining the projects put to it. On the other hand, the rules coming with EU membership – and in the near future for accession candidates – have proved much harder to crack. The countries involved on the European side expected various benefits, ranging from the most mundane and obvious to grander schemes. Since 2013, China has been repeating the same pledge for a $10 billion (now $11 billion) credit line, and, in 2015, a $3 billion investment fund. These are dollar figures – China’s official sources do not use euro figures. The problem is that the same announcements for the same funds by China have been repeated for the past three years, without much actual disbursement of funds. They are therefore increasingly treated as a gimmick by the EU member states participating in the 16+1. The 16+1 summit has also become the umbrella for several ministerial or technical dialogues and bilateral meetings. Polandinitially emerged as an early beneficiary, hosting a Business Council, an association of investment agencies and, since the 2017 Riga summit, a secretariat for maritime cooperation.[91] But Latvia, Romania, and Slovakia are now hosting other centres or platforms of the 16+1. The attempt on the part of Europeans to focus yearly summits on concrete deliverables seems to have failed so far. The 2015 Suzhou summit agenda ended in failure in this regard. The Riga summit reportedly almost did not reach a final resolution. Moreover, China has clearly sought to amend the format where it sees benefit to itself. For example, from the very beginning China pushed for the inclusion of non-EU states. The five non-EU states in the format are all candidates for EU accession from the Balkans. This initially strengthened China’s influence as against the EU within the format. Yet, not content with that, China also succeeded in bringing the Belarus prime minister to the 2016 Riga summit. Belarus is not a member of the EU, or a candidate for accession. It is also an authoritarian state that receives strong Russian and Chinese influence. According to 16+1 participants, “our opinion was not sought on inviting Belarus to Riga.”[92] In contrast, CEE observers have also noted that Moldova – a democracy – is not encouraged by China to join the 16+1.[93] But the extent of hard strategy lying behind China’s manoeuvring within the format should not be overstated: Chinese aspirations can veer off course when they clash with reality, often to such an extent that some inside observers discern a lack of real strategic direction behind Chinese actions. The advent of BRI policies, with the infrastructure gaming that they carry, seems to have contributed to that. Observers often note the frequent changes of intention on the part of Chinese companies and government officials: “the Chinese are chaotic and change every day. Very few routes are actually crucial to them”. [94]This is in fact not denied by Chinese official texts and other sources: OBOR, now renamed BRI in English, is an “initiative” and not a blueprint. Hence there is a large gap between projects’ announcements and real deliverables. In Macedonia, the project for a railway connecting Greece to Hungary through Serbia has been shelved after a corruption scandal implicated the government. Hopes that the now better-managed port of Piraeus, which China has invested in, would become a gateway to the north are frustrated by the abandonment of this rail link through Macedonia. And the conflicts in Crimea and Donbas have also rendered impossible, for the time being, a major rail connection from Asia to Budapest. BRI Silk Road schemes have therefore moved north, to the benefit of Belarus (explaining a surprising two-and-a-half day visit by Xi Jinping in 2015) and Poland. China mixes market behaviour with adaptation to circumstances and incentives for competition among its potential partners. The same flexibility – or is it flippancy? – applies to China’s latest game plan, announced at the Riga 2016 summit: a “three seas” initiative encompassing the Adriatic, the Black, and the Baltic Seas. Chinese sources themselves talk about “the astounding openness and borders” of BRI, stretching all the way to Scotland.[95] Vulnerable Europe? Despite the occasional ad hoc appearance of the scheme, China nevertheless intends to “reshape the global economic geography”, as two Chinese commentators have put it.[96] Rather than European economic integration, the projects may one day reshape access to Europe. As outlined above, this may not yet be the case when it comes to rail links, but it is beginning to appear for energy transport. China’s new and high-profile Asian Infrastructure Investment Bank project, alongside the European Bank for Reconstruction and Development, Azerbaijan, Georgia, and Turkey, involves a Trans Anatolian gas pipeline (TANAP) connecting the Caspian to Europe.[97] Linked to a Trans Albanian pipeline and ultimately to Italy, the project actually reduces dependence on Russia for natural gas. It may also prove unprofitable, given the current oversupply of gas in Europe. Also outside the EU, China has concluded free trade agreements with Iceland and Switzerland, and is negotiating one with Norway. It has also started other subregional meetings with selected countries in northern Europe and the Mediterranean. In February 2016, the Nordic Council of Ministers decided to explore a regional platform with China. A Swedish think-tank review estimated that “with efficient institutions, stable administrations, and comparatively decent economic conditions, the Nordic sub-region could become an alternative partner to the European Union”.[98] As one observer put it, “If 16+1 is not an existential threat to the EU, the addition of 16+1, 5+1 [the Nordic alliance] and 7+1 [Mediterranean Union] would certainly be one.”[99] When it comes to regional organisations which are already operational, China is not open to subgroups which may create a counterweight to its own views within ‘the 16’. Observers have noted that China regards the Visegrad Four,[100] an existing grouping, as “subversive”.[101] And the EU itself was not present at the first 16+1 Warsaw summit – in theory, because it was invited ‘too late’. From the Bucharest meeting in 2013 onwards it was able to send a regular observer. Notably, between December 2010 and October 2013, or the period that coincided with the euro crisis and the start of China’s cooperation scheme with CEE states, China held off from staging the High Level Economic and Trade Dialogue with the EU that had been decided back in 2008. The subtext to all this is clear: although Chinese commentaries are at pains not to present the 16+1 scheme as a competitor to the EU, there is no doubt that it constitutes a form of competition to EU-derived funding and projects.[102] To what extent does this leave the EU vulnerable? How tempting are Chinese offers to participating countries? CEE countries are indeed open to looking at the 16+1 and seeing what alternatives it may provide them which the EU will not. If nothing else, the 16+1 summits offer to each of the CEE heads of government an encounter. The events also help to lift the profile of these countries in China: “thanks to 16+1, this part of Europe was taken out from non-existence”, commented one onlooker.[103] Moreover, local gripes about EU processes make themselves felt too. In the wake of the Budapest and Warsaw summits, local observers from Romania and Serbia pointed to the inequality of eastern EU member states vis-à-vis their western European counterparts. Officials from CEE countries often complain of “double standards”. They point to the much broader scale of past Chinese investment into France, Germany, Italy, and the United Kingdom and the compromises made by these governments in the interest of cultivating the relationship. Eastern Europeans often express envy at the value of M&A activity by China in western and southern Europe – including the most recent wave of purchases in Italy, Spain, and Portugal. European Commission enquiries and decisions are sometimes thought to be under the influence of the EU’s largest economy, Germany, the most influential partner for CEE countries. One observer has argued that: “If Germany wants to cooperate with China, it does so bilaterally. If it wants to say no to China, it does this on the European level”.[104] In Hungary in particular, the prospect of diminishing or vanishing EU structural funds played a role in the turn towards China: “Orban calculates that after 2020 he will need to pay the EU instead of receiving subsidies”.[105] This was even more true of the non-EU members: “the Balkan states sense EU membership is a distant proposal, and they search for alternative partners”.[106] Collectively, the Balkan states can leverage partnership with China to get more attention from the EU. Now, the Balkans are able to sit at the same table as Poland and others. Germany had launched a Balkan initiative to counter the 16+1 initiative. If the Juncker plan could envisage partnering with China for infrastructure investment inside the EU, why not on Balkan connectivity?[107] This element of competition is more generally a feature of Chinese offers. In the words of one Hungarian expert, “China put ideas up in the air and left us to be candidates and fight for the projects. Hungary came out first.”[108] Loans alone Although the 16 CEE countries would prefer to receive Chinese cash through investment, Chinese state companies overwhelmingly prefer loans issued on their own terms, and in fact above EU market rates. Chinese experts talk of “cash-starved eastern Europe”. In addition, CEE participants look for potential benefits to themselves much more individually than collectively. Chinese bidders do not join EU tenders inside the EU, and have failed in their bids for tenders in accession states. This confines Chinese infrastructure projects to bilateral channels rather than joining – or competing with – a transnational format. Even transport lines that cross borders are not planned transnationally. The much-touted Belgrade-Budapest fast railway has only had a very small stretch constructed as yet, in Serbia. Negotiations with Serbia were long and drawn out; it had sought investment and risk-sharing with the Chinese companies, but eventually settled for a loan. Although the Hungarian portion was agreed in early 2017, the terms of the contract are unknown and remain the subject of much debate in Budapest – and at the European Commission, which has launched a preliminary enquiry regarding EU tender rules. Balkan states are more likely to host large Chinese projects – in large part because they do not have access to EU loans at favourable rates. Those projects that are actually considered, if not implemented, follow the Trans-European Transport Networks Commission blueprint – where China proposes credit to lines with low priority on the Commission’s list.[109] In 2014, China announced improvements in its preferential loans to 16+1 countries, in order to “lower its costs and expand its scale in a timely way”.[110] But a scouting of CEE member states reveals a deep mismatch of expectations with actual Chinese propositions. China contrasts its self-invoked flexibility on projects with the EU’s rules and conditionality that apply to public tenders, including on labour and environmental concerns. Chinese companies generally avoid public tenders, which they tend to lose in the Balkans (their public tender activity tends to concentrate on the Balkans), and prefer ad hoc arrangements. Informed sources in Brussels in fact describe this as a non-negotiable feature of BRI projects, making them incompatible with EU financing. So far, only non-EU CEE members have availed themselves of these loans – and at a price. While the press often cites a 2.5 percent interest rate for the Serbian railway project financing, the reality is different: in fact, the deal rests on a 4.6 percent interest rate, reduced to 3 percent if more than 50 percent of the equipment is Chinese, and 2.5 percent if it includes a more expensive fast train.[111] Understandably, a country such as Serbia, whose GDP in 2016 was only 87 percent of what it was in 1989, will be more sensitive to such offers. Other deals, such as the celebrated Belgrade bridge, relies on Chinese financing and 60 percent of the construction actually went to Chinese firms. As one expert noted, “to China the train business is not trade, it’s construction. They want to win twice: financing and guarantees. Trade is the cherry on the top.”[112] Even leaving aside the political context, Chinese loans clearly come with strings attached, in the form of supply by Chinese companies outside of any bidding process. No EU state would take up these terms, when even the commercial debt market allows for much lower rates.[113] When Poland issued a so-called “panda bond” in renminbi, it actually hedged it with a currency swap in euros, on which it had a negative interest rate of 0.17 percent. One observer described the dividing line within Europe as running “between those who need the cash, and those who think there are too many strings attached.”[114] The expensive terms for lending should not come as a surprise. Chinese loans to Russian firms, pegged to the dollar, have been placed recently at 6-7 percent interest,[115] while Chinese loans for infrastructure in some south-east Asian countries are said to go as high as 8.8 percent (such as with Sri Lanka).[116] Serbia thus signed on to $3.2 billion of new debt right after exiting an International Monetary Fund regime, but obtained Chinese refinancing for its bankrupt steel and petrochemical industry. Montenegro has taken on new debt equivalent to 21 percent of its GDP for an €830m mountain highway. This borrowing spree should, however, end in July 2017 when the Balkan Community Treaty comes into force, committing its signatories to EU rules for public markets and tenders. In other words, China’s push inside the Balkans through infrastructure projects may be over, at least under present terms. China also seeks to make explicit links between deals. For example, it promised Slovenia €1.3 billion in financing for a railway, in exchange for a 99-year lease on the port of Kopfer. This is understandable, as for China the combination provides perfect access, through the Brenner Pass, to Austria and central and northern Europe. But the irony of a deal that mixes an African-type linkage with a Hong Kong-type lease cannot be lost on everybody. Slovenia demurred, China declined to acquire a minority share of the port, and German and Austrian firms are now taking on the projects. And it is precisely on these grounds that disappointment seems to be growing. Eastern Europeans do not reproach China for an excess of influence, but for its lack of genuine interest, or for the mismatch between its offers and the local expectations. Above all, it is Chinese loans which are at play: CEE countries do not need them, especially after the European Central Bank lowered its rates to zero in March 2016: “We don’t need loans, we need investment in productive sectors, and greenfield investment, not acquisitions”, said one commentator.[117] While imports from China generally outpace exports by a factor of 10 to 1, investment is scarce. While 2016 was a record year for Chinese investment in Europe, CEE countries only received €2.8 billion from China. Indeed, the Riga 16+1 summit did not even address trade and investment. It focused instead on maritime “connectivity”, but made explicit the need for all schemes to conform to EU rules and to the TEN-T blueprint. In other words, CEE member states rejected the temptation of exiting EU rules for the sake of loans from China. The theme of the China-Europe rail connection is also receding. Although new train schedules and infrastructure between Europe and China still command media attention, experts and officials acknowledge that their impact is negligible. Not only do many trains go back empty, but, “In 2016, trains brought 150,000 tons of goods from China: this would fit on seven container ships, and maritime transport between China and Europe amounts to 150 million tons per year.”[118] Even air freight from the EU to China amounts to 575 000 tons in 2016, with of course a much higher value.[119] The CEE countries’ own criticism remains ambiguous: they hint that with a larger offer, one taking into account EU rules instead of circumventing them, Chinese proposals might be irresistible. At present, Japanese and Korean investment stands as a contrasting and positive example. It is still unlikely that Chinese firms will be able to adapt quickly to Europe’s regulations and ways of doing business.